All 23 banks in this year's stress test survived a hypothetical "severe" recession scenario, the U.S. Federal Reserve announced Wednesday. The report was a positive sign for the industry and economy following the string of bank failures earlier this spring. Bank stocks rose Thursday on the news and were among the top-performing names in the Dow Jones Industrial Average and S&P 500. Shares continued advancing early Friday.
Stress Test Results
According to the stress test, all 23 banks remained above their minimum capital requirements. The hypothetical test — which requires months to devise and execute — projected $541 billion in total losses, a 40% decline in commercial real estate prices, a 38% decline in home prices and a 10% unemployment rate. The banks in the 2023 stress test represented about 20% of office and downtown commercial real estate loans held by banks.
All the banks were able to withstand such a scenario and the test showed large banks could continue CRE lending despite heavy real estate losses, the Fed reported. The Fed also noted the projected loss rates on office properties are roughly triple the levels reached during the 2008 financial crisis.
"Today's results confirm that the banking system remains strong and resilient," Vice Chair for Supervision Michael S. Barr said in the release. "At the same time, this stress test is only one way to measure that strength. We should remain humble about how risks can arise and continue our work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses."
In a research note Thursday Citi analyst Keith Horowitz said the stress test results "came in better than expected, with stress capital buffers coming down or staying flat for most banks in our coverage," MarketWatch reported. Horowitz said JPMorgan, Bank of America and Goldman Sachs were the biggest winners with only a 1% reduction in their capital buffers.
Bank Stocks
JPMorgan and Goldman Sachs led the Dow Jones Industrial Average in morning trading, each up about 3%. Meanwhile, Wells Fargo, Huntington Bancshares and M&T Bank were among the top performers in the S&P 500.
JPM stock rose about 1.4% Friday after surging 3.5% Thursday. Shares surpassed the 143.37 buy point for a flat base during trading.
GS edged lower after gaining 3% Thursday. WFC climbed 0.6% after jumping 4.5% Thursday. BAC ticked up 0.1% following its 2.1% swing Thursday. SCHW shares dipped 0.8% after advancing 2.5% Thursday.
Among regional banks Friday, Zions Bancorp slid 1.5% to erase its gains from Thursday. Western Alliance Bancorp eased 1.4%, wiping out its Thursday advance.
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